So, You Want to Raise Money for Real Estate Investments?
Looking to diversify your current holdings and invest in new, high-quality projects? Establishing your own real estate fund could be the right move for you.
How to Create a Partnership to Help Raise Equity for a Real Estate Investment?
If you’re a little unfamiliar with the concept of a private equity real estate fund, in its simplest form it is a partnership created to help raise equity for ongoing real estate investments.
The sponsor will choose to create the fund. It is the sponsor’s job to then secure funding from investors. These funds, along with any money borrowed from other lenders or banks, can then me invested into real estate developments.
Creating Your Own Real Estate Fund
Setting up your own private equity real estate fund isn’t simple…but it is doable.
Firstly, you will definitely require a lawyer, however, you will need a specific type of attorney, a securities attorney to be exact. This is someone with expertise in the field of creating both public and private investment opportunities.
In this instance, you’ll be looking to create a private offering. Firms like Goodwin have vast experience in helping form investment vehicles and new real estate funds. This team are familiar with the complete lifecycle of real estate investment funds and can tackle every investment objective. Plus, their strong market presence helps ensure that you are making the right investment opportunity from the get-go.
Equity Fund vs Debt Fund
Once you have established your real estate fund, you will then need to decide if it will be a debt fund or an equity fund. A debt fund will simply loan money to your business and this business would be required to pay interest to your debt fund, which would then pay interest to its investors.
An equity fund would acquire any title deeds to the real estate investments. The profits from these investments can then be split. It’s important that you opt for an arrangement that will attract new investors.
Is this the Right Option for You?
It’s important to remember that setting up your own real estate fund comes with significant costs. In most cases you will pay anywhere from $10K to $50K to establish a new fund. If you are completing a high amount of volume, then this cost is affordable. However, if you’re only looking to flip and sell a handful of properties in a year, then you will not be able to justify the initial investment costs.
If you’re working with a smaller volume, you will likely be better off simply borrowing money from an individual investor. Just remember, one investor equates to one loan per property. Make sure to involve only one investor in any one deal.
It’s important that you run any type of investment process by your attorney first before pulling the trigger. Choosing to seek out advice from top firms like Goodwin can help to ensure you choose the right investment opportunity for you.